How cruel is the $500,000 price target for Bitcoin?

Michael Saylor, high profile Bitcoin (BTC -5.55%) The bull is at it again: He just set a $500,000 price target for Bitcoin. Speaking recently at MarketWatch’s Festival of New Ideas in Money, Saylor suggested that Bitcoin could reach $65,000 within four years. From there it goes to the moon. He thinks the digital currency could be worth $500,000 within the next ten years.

Of course, investors should take Saylor’s prediction with a pinch of salt, as it’s likely biased given how much of his own fortune is tied to Bitcoin and how much his company is worth. MicroStrategy (MSTR 2.84%) invested in the token. But it’s still worth asking: Is the $500,000 price target really that ugly for Bitcoin?

Market capitalization of Bitcoin

To put the $500,000 price target into context, it’s important to know that Bitcoin’s maximum supply will be 21 million coins. Satoshi Nakamoto, the pseudonym of Bitcoin’s creator, decided that there could never be more than 21 million bitcoins in existence. So it’s pretty easy to calculate how different Bitcoin price targets can lead to different implied market capitalizations.

The $500,000 price target puts the total Bitcoin market cap at $10.5 trillion. Currently, the total market value of cryptocurrency is about 360 billion dollars.

Image source: Getty Images.

According to Saylor, his Bitcoin price target is based on the current total market value of gold, which is approximately $10.5 trillion. This value can be obtained by multiplying the current spot price of gold ($1,650 per ounce) by the amount of the world’s above-ground gold reserves. As of early 2022, these gold reserves were estimated to be around 205,238 metric tons, according to the World Gold Council.

So, Saylor is basically saying that Bitcoin will one day have the market cap that gold has today. He thinks it’s real because cryptocurrency is “digital gold.” From his perspective, the token functions like gold as a hedge against inflation and a long-term store of value. Even if you believe this, you have to admit that a lot of things have to go right for Bitcoin to match the current market price of gold.

Bitcoin price targets

That being said, very smart investors have come up with some equally weird Bitcoin price targets in the past. For example, venture capitalist Tim Draper predicted that Bitcoin would reach $250,000 by 2022. Software CEO John McAfee once predicted that Bitcoin would reach $1 million by 2020. Most recently, Cathy Wood of ARK Invest predicted it would reach $1 million by 2030. So, to put all of this into context, Saylor’s price target isn’t the most outrageous.

Ugliest price target?

Wall Street is known for coming up with some wild valuation targets. During the first Internet boom, analysts rushed to set higher and higher price targets for Internet stocks. None of these stocks could be valued using conventional metrics, leading to some pretty crazy valuation models. Valuation has become more of an art than a science.

Considered one of the wildest prices at the time, the price target was Wall Street analyst Henry Blodgett’s forecast of $400. Amazon (AMZN 0.43%) While selling for $240 in 1998. Back then, few people could have predicted that the Amazon would become the monster it is today. Blodget was laughed at, called reckless and irresponsible, and ridiculed. Within three weeks, Amazon broke the $400 barrier. The rest, as they say, is history.

Will Bitcoin Ever Pass $500,000?

Quick calculations make it almost unthinkable that Bitcoin could ever reach $500,000. This will require a major restructuring of the global economy, the rise of Bitcoin as the world’s reserve currency, and the replacement of physical gold with digital gold.

Strange things have happened, though. Just ask Blodgett. As Amazon has become one of the most dominant companies in the world with a market capitalization of more than $1 trillion, he proved to be absolutely right. And guess what: In 2017, Blodget suggested that a $1 million price target for bitcoin — when it was trading at just $2,000 — wasn’t so crazy.

John McKee, CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Dominic Basulto has positions in Amazon and Bitcoin. The Motley Fool owns and recommends positions in Amazon and Bitcoin. The Motley Fool has a disclosure policy.

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